In May, business confidence fell back into negative territory as economic conditions continued to soften, mirroring the subdued activity seen in Q1 GDP data and extending into Q2.
Business conditions dipped slightly below average, with declines in trading conditions and profitability, though employment improved to above average. Consumer-facing sectors such as retail and recreation & personal services saw declines, and forward orders remained negative, especially in retail, wholesale, and construction. Despite this, capacity utilization stayed above average, and cost and price growth measures increased, with retail price growth rebounding to 1.6% quarterly. This indicates that while growth has slowed, the balance between supply and demand is still off, suggesting inflation will only gradually moderate.
Comments from NAB Chief Economist Alan Oster: Overall business conditions fell 1 point to +6 index points, just below the long-run average. Employment rose 3 points to +5 index points, while trading conditions and profitability each fell 3 points.
“Business conditions softened further in May,” said NAB Chief Economist Alan Oster. “Q1 GDP data showed subdued economic activity for much of the past year, and our survey suggests this trend has continued into Q2. Consumer-facing sectors are particularly impacted as households adjust their spending.”
“However, it’s encouraging to see an improvement in the employment index, indicating that the labor market remains a strong point for the economy,” Mr. Oster added.
Business confidence dropped 4 points to -3 index points. Forward orders increased 1 point to -6 index points. Capital expenditure fell 4 points to +4 index points, while capacity utilization rose slightly to 83.3%.
“Business confidence fell back into negative territory in May, marking a period of weak business sentiment,” Mr. Oster said. “Forward orders remained deeply negative in retail, wholesale, and construction, highlighting pressure in these sectors and potential concerns for the future.”
“Despite the softening activity, above-average capacity utilization suggests the balance between supply and demand is still not achieved,” said Mr. Oster.
Labour cost growth rose to 2.3% quarterly (from 1.5% in April), purchase cost growth increased to 1.9% (from 1.3%), and product price growth lifted to 1.1% overall (from 0.8%). Retail price growth increased to 1.6% (from 1.0%), while recreation & personal services prices edged up to 1.0% (from 0.9%).
“Cost and price growth measures re-accelerated in May,” said Mr. Oster. “We have anticipated a gradual and uneven inflation path, and the survey results reinforce this.”
“Overall, the message for the RBA is mixed,” said Mr. Oster. “There are warning signs for growth, but also reasons to be cautious about inflation. We expect the RBA to maintain current rates for some time as they navigate these contrasting risks.”
For more information, please see the NAB Monthly Business Survey (May 2024)
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
